DailyPlay – Conditional Opening Trade (UNG) Partial Closing Trade (USO) – December 6, 2022

Partial Closing Trade

• USO – 25.64% Gain: Buy to Close 6 Contracts Dec. 9th $67/$65 Put Vertical Spreads @ $0.58 Debit. DailyPlay Portfolio: By Closing 6 of 12 Contracts, we will be paying $348.

UNG Conditional Bullish Opening Trade

View UNG Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 20 Contracts Jan. 13h $16.50/$18 Call Vertical Spreads @ $0.52 Debit.

Total Risk: This trade has a max risk of $1,040 (20 Contracts x $52).

Counter Trend Signal: This is a Bullish trade on a stock that is experiencing a bearish trend.

1M/6M Trends: Bearish/Bearish

Technical Score: 1/10

OptionsPlay Score: 126

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that this is a CONDITIONAL trade. We will only enter the trade when the condition is met, which is IF UNG gets to the $16.50 – $16.25 zone. Also note that the cost basis, premium paid, as well as the number of contracts when we open this trade will therefore be different from what we post today. This condition is only valid for a week unless advised otherwise.

Investment Rationale

Stocks got hit hard yesterday while rates and the dollar moved higher.  A surprise? Nope. The major downtrend is still in effect on the SPX, and along with the recent active Aggressive Sequential +13 signal has still shown itself to be a place that the risk of a decline was higher than the chance of a further upmove. That, at least, is what has proven to be the right way to play in all of 2022, and as I recently wrote you, “You play what’s been working until it doesn’t”.

As I mentioned in Monday morning’s webinar, the SPX is now stuck between its major downtrend line and minor uptrend line – the former being more important than the latter (based upon time in effect and times the lines have been touched). 

SPY – Daily

If the week closes beneath 3906 (the mid-November low), I think we have seen the labeled gap get filled along with the bearish Propulsion Momentum level (3814) getting tested, which to me will be very important for bulls to defend. If they can’t, then I think that 2022 lows will get tested and likely be exceeded in the first quarter of ’23.

As per open positions, let’s take off another 6 USO Dec. 9th $67/$65 short put spreads today. (We took the first 4 off yesterday.) They expire on Friday, and we are taking pieces off each day this week thru Thursday.

We are also long a 50% position in a TSLA Dec. 30th $195/$225 call spread, and then yesterday got filled on the second half of the trade by buying a Dec. 30th $190/$225 call spread when the stock got to $190. That means we got filled near the open at about $9.70. I will likely keep this on unless we see a stock close beneath $181.11.

Now, as per a new trade, I do not want to be initiating any significant new standard equity positions until we get next week’s CPI and Fed data. However, I am willing to play a name that’s not in the regular corporate security world – more specifically, in the commodity space. And I’ve even picked one that is not dollar-correlated area of commodities, namely, natural gas. (This market trades on fundamentals and technicals, and is in many ways a uniquely different commodity to trade, as the influences that affect most commods do not impact this one.)

Yesterday, Natgas futures were down 10+ percent, and the chart shows that its associated ETF (UNG) looks headed for a move to its weekly TDST line at $16.38, which also happens to be where the uptrend line comes in from the April 2021 low and is where the weekly cloud’s Lagging Line would hit the bottom of its cloud. As such, as a conditional trade, when and if UNG gets to the $16.50 to $16.25 zone, we’ll then look to buy a 1% position in the Jan. 13th $16.50/$18 call spread at the then bid/offer mid-price. (Consider this and all conditional trades to be an active recommendation from me for a week after I publish it unless told otherwise.)

UNG – Weekly